I feel a sense of obligation to my successor to make sure there is not a, you know, a huge economic crisis. Look, we’re in a crisis now. I mean, we’re in a huge recession, but I don’t want to make it even worse and on the other hand, I’m mindful of not putting good money after bad so we’re working through some options.

… I’ve abandoned free market principles to save the free market system. I think when people review what has taken place in the last six months and put it all in one package, they’ll realize how significantly we have moved.

Excerpt from The King Report, 17 December 2008 — “Independent View of the News.”

If one uses the sophistry, “I’ve abandoned free-market principles to save the free-market system”, then one can assume he/she would also ‘abandon democratic or constitutional principles to save the country.’ Solons, trying to prove their decades-old philosophies and salvage their massive egos, have altered the very nature and fabric of the USA with their grandiose interventions and nationalizations. The USA as the founders conceived and ensuing generations believed no longer exists.

A select few solons now exercise an unfathomable concentration of power and control over the US economy and financial system. The major concern is no longer economic or financial; it’s for the return of the USA to its market economy and constitutional roots.

Ben Bernanke and the Fed just screwed everyone in the US, and some abroad, that played by the rules, was prudent and live on fixed incomes. Ben, just like Easy Al, is once again redistributing wealth from the prudent, the savers and retirees to the reckless and the boobs that created this mess. What Ben and his boobs don’t understand is they are harming the economy by cutting people’s incomes. The Fed, by cutting its official rate to 0 to 0.25%, is just putting the Fed’s target rate in line with the effective or real rate. But the Fed, via its communiqué {16 Dec}, is admitting that it is petrified of what is occurring in the economy and financial system so it is now in all out money/credit dump mode.

Since the Committee’s last meeting, labor market conditions have deteriorated, and the available data indicate that consumer spending, business investment, and industrial production have declined. Financial markets remain quite strained and credit conditions tight. Overall, the outlook for economic activity has weakened further…

The Federal Reserve will employ all available tools to promote the resumption of sustainable economic growth and to preserve price stability. In particular, the Committee anticipates that weak economic conditions are likely to warrant exceptionally low levels of the federal funds rate for some time…

As previously announced, over the next few quarters the Federal Reserve will purchase large quantities of agency debt and mortgage-backed securities to provide support to the mortgage and housing markets, and it stands ready to expand its purchases of agency debt and mortgage-backed securities as conditions warrant. The Committee is also evaluating the potential benefits of purchasing longer-term Treasury securities. Early next year, the Federal Reserve will also implement the Term Asset-Backed Securities Loan Facility to facilitate the extension of credit to households and small businesses. The Federal Reserve will continue to consider ways of using its balance sheet to further support credit markets and economic activity.

The Fed is frantically signaling that it wants asset prices to inflate and will engage in any and all activities that will force asset prices higher. The Fed announced that it will monetize the entire debt market if necessary. As we have asserted, the Fed has bet the entire ranch. Now we get to see if it works.

… More importantly, the Fed has inflated the US government and agency debt bubble to with a couple hundred basis points of its maximum value. There will be hell to pay later, no matter how many Street shills aver that the Fed is capable of removing the toxin at the precise moment. About the only arrow remaining for the Fed is to announce that it will monetize stocks and the NY Yankee’s payroll. The Fed is now inflating at a record level for a central bank of a developed country, with the possible exception of Weimar Germany.

The Great Monetarism Experiment is on! But it is NOT stopping deflation via the monetization of debt, which has been accomplished repeatedly throughout history. The Great Monetarism Bet is averting deflation without going the way of a banana republic or Weimar Germany. You can bet that the Fed will overplay its ‘bet the ranch’ monetization because it cannot afford to abort the process too early. The Fed must wait until significant inflation or dollar destruction appears.

… Please rebuke anyone that labels Bernanke with some adjective that conveys genius or acumen because any idiot can paper over a deflation and numerous idiots have tried to do so – with catastrophic results. … So the Fed has snatched even more power and control, my dear comrades, because now just about everyone must connect to the Fed’s umbilical cord to get credit.

Team Obama will preside over and manage a ‘command economy’ with a chunk of the US financial system nationalized and the Fed being, for all intents and practices, the debt market. And soon US automakers could be nationalized to some degree.

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If one uses the sophistry, “I’ve abandoned free-market principles to save the free-market system”, then one can assume he/she would also ‘abandon democratic or constitutional principles to save the country.’

Perhaps these pundits have forgotten their American history. In fact, President Lincoln did abandon democratic and constitutional principles to save this country.
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.Fabius Maximus replies: You kidding right? Comparing a normal (if severe) cyclical downturn with an armed revolt by half the country?

While I like The Great Monetarism Experiment as a phrase, this episode of deflation was brought to us primarily by the Great Derivative Experiment, with all bankers learning from the bailout of LTCM that if they’re ‘too big to fail’, that means the gov’t picks up the risk.

If some $60 tr is disappearing from the interlocked global financial system, then deflation is coming unless the gov’t takes anti-deflationary actions.

I think printing money, now, is the best of the bad choices — but give small amounts equally to everybody, like $5 000 or $10 000, so it is the buyers who decide the winners, rather than recipients of lobbyists.

It says here that the real story is the corruption, stupid. We are at a technologically intensified terminal confluence of corrupt behaviors by our major institutions and our citizenry. As a result, we are in complete jeopardy.

The government put power, PR, and personal gain above good governance. Business went along for short-term profits, with no thought to long-term quality and good corporate citizenship. The rabble bit on the credit cards, the easy money in investments, and the ridiculous distractions and distortions promulgated by the for-profit business media who also played ball with government deception when they thought it would drive up ratings.

The Democrats were bad, the Republicans were worse, and the organized ‘religions’ no help. The signs were rampant, many people spoke up, they were ignored. Now we have one last shot. Either the new administration finds a way to change our energy configuration and how we live, and reduces corruption to a tolerable level despite the technology, or anything remotely resembling the United States of America will simply cease to exist.

What to dread are some magic numbers… the level of unemployment, the amount of affordable calories available per capita, the amount of debt that will lead to abandoning our commitments to the veterans of three wars… that will mean open revolt, and the refusal of our troops to fire on their fellow citizens in defense of our current form of government. The Madoff case, the ‘financial crisis,’ the corruption in Iraq and Afghanistan that is worse than before we arrived… these are exactly what happened in the Soviet Union. Then, one day it was gone. This land could be four or five separate countries by 2020. Obama may be one of our greatest Presidents, or one of our last… or both.

The winner of the war on terror appears to be a fictional character… Milo Minderbinder in Catch-22. Soon we will be bombing our own troops under contract to our enemies, for profit… if we have not already been doing that in effect. And everyone has a share!

Unfortunately, if trends continue, Obama may be hailed in real time media coverage as being a great president while actually being one of the worst. Historians will note that this happened as a symptom of our current cultural as well as financial bankruptcy. The recent NYT article making sure Bush gets 100% of the blame for this recession is a case in point.

With the speculative bubble, the best return came from leaving the farm, sitting at the terminal and trading little blips on the screen all day. No real wealth was generated, but the numbers went up, up, up. Without the bubble the banks are glass towers with no business plan. Washington increases the money supply by handing over billions to banks, and the leaders are mystified, “Why is no one buying anything anymore?” Well, the people are in debt and broke. Billion to Citigroup doesn’t motivate anyone to buy anything. These companies might as well bonus the money to the executives, at least maybe someone might get a job mopping the floors of luxurious executive estates.

What has to happen, and this is going to take a very long time, is that the USA needs to rebuild an economy based on actual productivity, and not speculative frenzy. That’s when the real recovery can begin. Unfortunately, indications are that ‘financial wizards’ are steering the ship, so we’re due for a few years of trying to rebuild the lost world they knew and thrived in. It’ll take that time to realize this is a lost cause. Meanwhile, it’s down, down, down.

“… the USA needs to rebuild an economy based on actual productivity, and not speculative frenzy. That’s when the real recovery can begin.”

I’m not sure that is possible. IME the last 20 years we’ve been told by business and the Government that we’re a “service economy.” Which means we are not a “manufacturing economy.” Accordingly the skill base required to support manufacturing has been slowly but surely evaporating into the ether.

Of course we are now reaping the benefits of not making anything, but creating “value” by investing, leveraging, speculating …

Kind of a digression, but I wouldn’t put the lady who runs the beauty salon and the guy who gambles in the market in the same bin. But, I agree with the point. They never had in mind an economy of beauticians. We became a ‘service economy’ which was really a ‘financial services economy’ which is now a ‘nothing economy.’ Oops.

[quote]After committing over $7 trillion into the finance sector, the market continued to fail and the economy heading downward. If just $2 trillion of the $7 trillion the government has so far committed for the financial sector were to be channeled directly to the unemployed, each worker would receive $200,000 (the equivalent of four years at average wages) to tie them over their jobless phase to kick-start the economy.

The same amount would support for one whole year 40 million middle-income families with an annual income of $50,000. If government funds were directed towards people rather than institutions, consumer demand will revive immediately and companies will sell again to make profits. The recession will end within 18 months. [/quote]

What’s happened is we’re getting all the downside of massive stimulus spending, that is massive public debt, but none of the actual stimulus.